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Non - Performing Asset

Charu Latha

What is NPA?

In a banking institution’s perspective, a Non Performing Asset (NPA) is a loan or advance for which the principal or interest payment remains overdue for a period of 90 days.


When does an account be classified as NPA?

As a measure to identify bank accounts which are at a risk of becoming NPAs, banks treat those accounts as Special Mention Accounts (SMA). These are accounts which fall between standard and NPA. There are 3 categories under SMA, which are :

  1. RG 1 – default between day 1 – day 30

  2. RG 2 – default between day 31 – day 60

  3. RG 3 – default between day 61 – day 90

(RG – Risk Grade)

It is pertinent to note that the accounts could be classified under SMA for other reasons such as:

  1. Non - submission of stock statement

  2. Renewal of accounts not done on a timely basis.


What is the next stage?

Post classification of an account as NPA, the banks will continue to take various recovery measures which include:

  1. Following up with the borrowers for upgradation of accounts by payment of the overdues.

  2. Banks will also ensure all possibilities of recovery by way of extending one-time settlement, compromise settlement. settlement under Lok Adalat, etc., to reduce the loss for the bank.

  3. When the above recovery measure fails and if the borrower has provided a property as collateral security, a notice under the SARFAESI Act, 2002 can be given for auctioning the property (as per the procedures & timeline provided under the Act ).

  4. Outstandings in the account will be transferred to Advances Under Collection Account (AUCA) and later those accounts will be classified as ‘recalled assets.’

  5. Any sort of amount received by way of recovery, post the transfer made to recalled assets will be treated as profit to the bank and it shall be credited to the bank's charges account.

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